I recently read a Wall Street Journal article by Sarah Carey (former Yukos boardmember, current Eurasia Foundationa boardmember) on reprivatization [in the Action Ukraine Report].

The author mentions a number of concernsm including the following:

• it is going to be very difficult to provide proof that the reprivatazation policy is legitimate, and get it right in practice
• it will be very difficult to reprivatize in a way that looks more like due process than a vendetta
• there's gonna be crazy campaigning days both to stay off the list, and to battle any negative decisions
• there's gonna have to be a lot of negotiation to establish "true prices" that will need to be paid for assets

And then ends with this:

Given the complexities outlined above (which invite legal challenges at every single step), a far simpler solution to the state's goal of recovering the fair value for assets that were privatized too cheaply would be to enact a one-time compensatory tax that leaves the current ownership in place. Only those few privatizations that involved clear violations of laws in effect at the time they occurred would then need to be handled by the courts.

Given the clear advantages of such a one-time tax, it is a mystery why the Ukrainian government insists on the more cumbersome and potentially more costly reprivatization of former state assets.

To which I have this to say: you cannot make me think you are so politically obtuse after being on the board of Yukos, of all companies. That you are mystified by the Ukrainian government's position is either posturing or an astounding lack of understanding for non-economic concerns. I will spell it out to you:

It will be difficult to provide proof that the reprivatization policy is legitimate. It will be child's play to prove that the reprivatization is warranted, especially to Ukrainians. The vast majority are dead certain the businesses were stolen, especially the Yushchenko government's strongest supporters.

If you want to know why Yushchenko's government wants to reprivatize them, it is because they don't want to give this speech: "My dear friends, I want to acknowledge that there exists in our country a group of people who stole major assets from the goverment and made tons of money on them, essentially ripping off the entire nation. You have been oppressed by these people, the oligarchs, for many years. But in the interest of expediency, I'm going to let them keep their ill-gotten gains. Don't worry, the government will make a much better percentage this way."

Not only does that leave the businesses in the hands of those who stole them, it leaves the management to those same people. They did not accumulate the businesses because of their ability to make a profit, it can thus be assumed that they are less likely to be able to generate a profit on those businesses than (for example) some of the major international companies that gave high bids for Krivyrizhstal, might be able to. if Akhmetov and Pinchuk get to keep this asset, not only are they richer and more powerful, but if their poorly tested ability to run businesses based on market principles fail, they are going to come back to the government seeking handouts and assistance, backed up by suckered employees.

Keeping Things in Focus

Tymoshenko once mentioned the idea that 3,000 businesses may be privatized, but Yushchenko is quoted at thirty. Assuming that gets whittled down somewhat for technical reasons, you have twenty of the most egregiously stolen businesses taken back from those who stole them. Yushchenko's government then holds up the deals as evidence that the nasty oligarchs aren't getting away with stuff anymore, and the less terrible privatizations can be quietly dealt with, hopefully in deals that resemble the one-time tax you speak of (and which has been much favored in recent coverage of privatization).

Yushchenko's government might not be able to pull off something as clean and rational as I've outlined here, but a mixed strategy like this is a far better than the all-one-time-tax policy that Ms. Carey and others have propounded. This is true both in terms of political expediency, and long-term economic interests, not to mention some basic fairness to a cheated nation.